GST on Ice Cream: Applicability, HSN Code and GST Rate

Ice cream producers need to pay GST at 18% (HSN – 21050000), where the key ingredients are sugar, milk, dry fruits, etc., used to produce the ice cream.

Ice cream producers can claim the input tax credit (ITC) of the key ingredient milk, which is brought under the purview of GST from 18th July 2022 and is also allowed to avail ITC on the costs incurred for maintenance expenses, advertising, packaging, renting or acquiring plant, machinery, and factory premises.

Scope of taxation

Ice cream producers aren’t allowed to opt for the composition scheme and pay a minimum tax of 1% even if the ice cream producer’s turnover is below INR 1.5 crores. In the recently concluded 45th GST meet, ice-cream parlours in the trade of supplying manufactured ice-creams will be taxed at 18 per cent with an input tax credit available to them.

The finance ministry also clarified that GST at 18% won’t be effective retrospectively. The past dues of GST of ice-cream parlours that have been taxed at 5% without input tax credit would be treated as fully GST paid to avoid unnecessary litigation.

As per circular no. 164 dated 6th October 2021, even if the ice cream creams supplied at ice cream parlours contain service ingredients, they won’t qualify as a restaurant. Accordingly, an 18% GST would apply to ice cream sold by parlours or such outlets.

When ice creams are served at a restaurant, it will attract GST depending upon the applicability of GST on the restaurant as a service of supplying goods in the form of food and will be classified as restaurant services. So in case a restaurant supplies beverages, food, or ice cream, it would be treated as restaurant service.

Availability of ITC on making and sale of ice cream

• If a restaurant is registered under the composition scheme, then GST won’t be charged to the customer. The restaurant would pay GST at a rate of 5% without availing the ITC.
• If the restaurant needs to pay GST at 5%, then GST at 5% would be charged to the end consumer, and the restaurant would pay GST at the rate of 5% without availing ITC.
• If the restaurant needs to pay GST at 18%, then GST at 18% would be charged to the end consumer, and the restaurant would pay GST at the rate of 18% and can avail ITC.
• When any outdoor caterers serve ice cream, then GST at the rate of 18% will be charged to the end consumer and outdoor caterers would pay GST at the rate of 18% and can avail ITC.

Authority for Advance Rulings (AAR) on GST on ice cream

The AAR Maharashtra held that GST at 18% would be levied on the supply of ice cream scoops. The applicant, Arihant Enterprises, sold ice creams in retail packs and as ice cream scoops under a franchisee model, the majority of sales of the company were through retail packs.

The applicant argued that serving ice cream scoops involved only minimal service. And only some of the franchise outlets had limited seating arrangements, primarily for senior citizens and mothers accompanying their toddlers.

Patrons were free to eat the ice cream scoops outside the outlet. The AAR held that serving ice cream scoops didn’t encompass any service element and is, by nature, a supply of goods. The transaction would be GST at 18%, and the company is eligible for an input tax credit (ITC).

The AAR observed that the company sold ice creams in the same form as was received by the company and at rates not exceeding the maximum retail price (MRP). Further, the AAP observed that in most cases, ice creams were consumed outside the outlets. It was, hence, held that the transaction is nothing but a supply of goods.